Question

My portfolio has a Sharpe ratio = 0.78 compared to the S&P500 sharpe ratio of 0.46 for this period. Can I say that my portfolio beat the market?

Answer 1

Answer:

Sharpe Ratio is the return earned in excess of the risk free rate per unit of risk. While interpreting the Sharpe Ratio, we say that the higher the value the more excess return investors can expect to earn with the risk that they are exposed to.
In the given question, the portfolio's Sharpe Ratio is 0.78 as compared to the market's i.e. 0.46. Since, the portfolio's Sharpe ratio is higher, it is a good sign of its working. It indicates a better risk adjusted performance. It means that the relationship between return and risk is optimal.